With inflation considered under control, the Bank of Canada has shifted its focus to other factors, particularly economic growth, in shaping its interest rate policies. Gross Domestic Product (GDP), the measure of all goods and services produced by the economy, is now a key metric influencing the central bank's decisions.

GDP Growth Below Expectations

Statistics Canada reported a GDP growth of 1.0% for the third quarter of 2024, slightly below the Bank of Canada’s projection of 1.5%. Despite this shortfall, the central bank is unlikely to deviate from its current trajectory of interest rate cuts. Many market analysts, including major banks, anticipate another significant 0.50% rate cut in the Bank's final rate decision of the year on December 11.

Drivers of Economic Growth

Consumer and government spending were primary drivers of GDP growth in the third quarter. Residential investment also showed renewed strength, rising 3.0%—marking the first increase in four quarters. Additionally, GDP growth for the second quarter was revised slightly upward from 2.1% to 2.2%, further supporting a positive trend.

Challenges Remain

Despite overall economic growth, GDP per capita—a measure dividing GDP by the population—has declined for the sixth consecutive quarter. This ongoing contraction may explain why many Canadians feel the economy has not improved significantly in their daily lives.

Upcoming Employment Report

The Bank of Canada will likely consider the latest employment data, due this Friday, as it prepares its next rate announcement. These numbers could provide further insight into the economic trajectory as the year comes to a close.

Looking Ahead

While the Bank of Canada continues to lower rates to stimulate the economy, challenges like declining GDP per capita underscore the complexity of Canada’s economic recovery. Canadians can expect continued efforts to balance growth and stability as policymakers navigate this critical period.